With the number of U.S. homes without pay TV surging to 22%, people are returning to antenna TV in increasing numbers to save money. But will the growth in skinny bundles slow the return to over-the-air watching?

U.S. households using each type of TV Source

The Q3 2016 Nielsen Total Audience Report shows how far the balance of television sources used in U.S. households has shifted over the last two years. The number of pay TV households has declined from 101.1M in Q3 2014, to 98.2M in Q3 2016, a fall of nearly 3%. During the same period, the number of households relying on broadcast increased from 12.2M to 14.3M, an increase of 17%. Similarly, the number of homes watching a television using broadband exclusively increased 64%, from 2.8M to 4.6M. And the number of homes not using pay TV, broadcast, or broadband to watch television increased from 7.2M to 8.8M (+22%.)

TV source household penetration

The balance of TV service household penetration has shifted dramatically between 2014 and 2016. The U.S. census says the number of homes increased from 123.3M in 2014 to 125.8M in 2016. Over that period, pay TV penetration of homes fell from 82.5% in Q3 2014, to 78.1% in 2016. Looked at another way, the number homes without pay TV increased from 18% to 21.9%.

The penetration of over-the-air TV households has increased from 9.9% to 11.4% between Q3 2014 and Q3 2016. Similarly, the penetration of those relying on broadband for television has increased from 2.2% to 3.6%, and households with no TV from 6% to 7%.

The combination of broadband and antenna television appears to be a potent combination. Parks Associates reports that 15% of broadband households rely on over-the-air for their linear TV services. This is significantly higher than the penetration in the general population, though it should also be noted that the penetration of pay TV is also higher in the broadband group (81% versus 78%.)

Why people quit pay TV

It is no secret why people are quitting pay television. The number one reason, by far, is the cost. TiVo/Digitalsmiths found in Q3 2016 that 83% of those saying they had disconnected pay TV in the last 12 months cited the fact that it simply too expensive. And who can blame them. The average Comcast subscriber paid 3.5% more for television services in Q4 2016 as they did just one year earlier (inflation in the U.S. in 2016 was 2.1%.)

No surprisingly, Internet television sources are beginning to influence people’s decision to leave pay TV behind. 60% said their use of services like Netflix and Hulu was a factor in their decision. However, more of a surprise is the 28% say their ability to watch antenna television was a big factor.

There are other significant reasons cited by cord-cutters for dumping their provider. A quarter say the ability to binge watch through online TV services was important. 16% said they moved and have no intention of reconnecting pay TV. And 14% said they were mostly watching web originals like House of Cards, Transparent, and Comedians in Cars Getting Coffee.

Skinny bundles to impact antenna TV growth

Skinny bundle services like Sling TV and PlayStation Vue are increasingly providing local broadcast stations as a part of their channel mix. Skinny bundle providers have identified cord cutters as a key target for their services. If they are successful in this group it could significantly blunt the appeal of antenna television, just as cable did in its heyday.

Why it matters

The number of homes in the US without traditional television service has increased nearly 4% over the last two years, to 22%.

The use of over-the-air television has increased 1.5% over the same period, to 11.4% of homes.

Since skinny bundles are increasingly providing local broadcast channels, this could slow the growth in antenna television.

One Comment

For consumers, the problem with IP Skinny Bundles is data caps. Cord cutters do not want to be forced into a higher-priced Internet tier just to watch TV. When you consider that the average U.S. HH watches 4 hours of TV per day (including concurrent viewing sessions of different channels in different rooms), then combine that with a teenager or two who stream music or participate in online gaming, and your standard 1TB data cap is going to be tough to maintain, particularly if you stream high quality HD video in your Skinny Bundle. What about falling asleep while watching TV? You’re snoring away and the streaming continues unabated.

Because local broadcast channels represent the bulk of what Americans watch on TV (on average, 47 of the top 50 TV shows), consumers are turning to a TV antenna to provide this for free, without having to stream, and Skinny Bundles become an add-on service for the handful of live cable network channels that they would want to view in addition to local broadcast channels. So it may be possible that the proliferation of Skinny Bundles will actually drive antenna television adoption in the long run, rather than slow it down.

DirecTV Now is facing a distinct advantage in this area due to the new regime at the FCC, which is now likely to allow ISPs like AT&T to deliver their own Skinny Bundles that do not count against data caps. However, if a consumer with AT&T internet service decides to drop DirecTV Now and go with a lower-priced service like Sling TV, then data caps will come into play. This competition-stifling scenario is handing the Skinny Bundle business to AT&T, Cox, Comcast and Charter, with Sling TV and Vue left out in the cold.

However, once cord cutters get a taste of Skinny Bundles that are subject to the same rising programming fees and price increases, especially from the same companies they sought to leave behind in the first place, the combination of a TV antenna with a Netflix/Amazon OTT cocktail becomes very attractive.